Debit Card VS Credit Card. Pros and cons of both

Taking one glance at your wallet can lead to all sorts of confusion. There's probably a couple of dozens of different cards in there. With all those being in the mix, it can be easy to mix them up. The same applies when you are looking for taking out a new one as the fine print and the name themselves can be confusing. Also, improper usage can lead to all sorts of headache-inducing situations. Making the best out of anything you own and applying the right tool in any given situation is what we all want. While they all look like pieces of plastic, there are some distinct differences and, we will go over them now. From definition to the pros and cons, here is what you need to know.

1. Credit card

Credit cards are issued from your bank under pre-arranged conditions specified in the contract that you both agree with. The summary of this is that you agree to borrow money from the bank or the financial institution under set circumstances. Repaying them usually includes fixed or variable rates plus interest. In this example, your credit score also comes into play and affects the terms of the agreement by a significant factor.

In most situations, your credit card can only be charged under predetermined circumstances. For example, the funds can only be used for house renovations and similar expenses. Any cap can be set on the number of funds that can be used and, after that, the credit card can become inactive until the credit (with interest) is paid off. Different banks and financial institutions offer a myriad of options here.

2. Debit card

A debit card allows for payments to be deducted from your bank account. Unlike the credit card where the credit needs to be preapproved and met under certain conditions, a debit card draws funds from your private account and, you can use them in any manner you see fit. But, in this case, the amount of funds on the debit card is limited by the amount on it and can't go over it unless your bank or financial institution has a pre-arranged agreement with you.

Debit cards can be used anywhere for any purpose as the funds on them are yours, and thus, you are free to use them in any way you see fit. Also, in some cases, the transfer between you and the receiver can be instant or it can take some time, depending on the situation. While all of this may seem confusing at first glance, you can always rely on professional and experienced Cuscal Payments, and many other payment companies to assist and inform you on the topic. Information is key and there is plenty of it out there so armed with the knowledge you can make the right decision that best suits you.

3. Pros and cons of both cards

Putting it all on paper it's important to know where and for what to best use these cards. Debit cards don't have yearly or withdrawing fees attached to them. Other than maintaining your bank account, there are no associated costs behind them. On the other side, credit cards have interests for starters. If you are temporarily in a financial pinch and can meet your payments, then the interest rates can soar and your credit score plummets. Which cannot happen on your debit card as you can only use the money you have there. Unless you have overdraft enabled, in which case you should also pay attention to your spendings or pay overdraft fees.

With a debit card, you only draw on the money you already have in your account, so technically, you can’t go into debt, unless you overspend the amount on your card. That’s why, with debit cards, you should only stick with what you have and, in that way, avoid debt.

Since we mentioned credit score history, credit cards can help you improve it. Taking credit and being responsible with it, only helps to improve your credit score and as the name implies, your credit card is the right tool for it. Just note one more thing and, that is the usage. Modern credit cards are accepted around the world in nearly any location and with conversions for almost all of the global currencies. Which is an area that most debit cards lack or are severely limited as they can only be used domestically.

In conclusion, if you use a credit card responsible and meet your payments, it can only benefit you. Since you can limit the types of spending you are effectively specializing it. Down the road, your credit score rises and, you can use it anywhere you, please. Your debit card, on the other hand, is a sure thing. It can be used as long as you have funds on it. Since it's refilled by you and not by the bank you are always in control. While it doesn't help you bring your credit score up, it also doesn't bring it down. Both of these choices are specialized for some things and, we trust that you will make the right decision.

Mike is an Australian business consulting specialist. He’s working with companies that outsource their IT maintenance. He often writes about technology, business and marketing and is a regular contributor on several sites.